On the policy road map released a week earlier, Asia’s fourth-largest economy will run future economic policies under four key principles — income-led growth, job-creating economy, fair economy and innovative growth. (Image: Kobiz Media)
SEJONG, Aug. 2 (Korea Bizwire) – South Korea will raise tax rates for the “super-rich” and big money-making companies, the finance ministry said Wednesday, in what many see as a move to finance the incumbent Moon Jae-in government’s pledges on job creation and expand social welfare.
Under its biannual tax revision plan, which requires approval from the National Assembly, the Ministry of Strategy and Finance said it will increase the income tax rate from the current 40 percent to 42 percent on people whose taxable income exceeds 500 million won (US$445,700) per annum.
It will also create a new income bracket for those making 300-500 million won with tax rates set at 40 percent.
At the same time, the government will newly set the highest corporate tax bracket for businesses with taxable income of 200 billion won or more and impose 25 percent rates. Companies with income in the 20-200 billion won range will be subject to the current rate of 22 percent.The finance ministry said the hike in income and corporate taxes is aimed at expanding the fiscal role of solving pressing social issues such as deepening income polarization and low growth.
“This year’s tax revision is focused on creating new jobs and improving income redistribution as a way to tackle weak growth and polarization,” Finance Minister Kim Dong-yeon said in a press conference held last Friday prior to the tax revision announcement. “Also, we put emphasis on expanding the overall revenue base for the government that will allow it to execute fiscal tools in a more positive way.”
He said that it is desirable to adjust tax rates for wealthy people and companies at this time, to reflect the current economic environment and better reflect the fair taxation principle.
Kim said the government is not considering raising the value added tax, which will affect everyone.
“The rise in revenue earnings will be used to support the needy and mom-and-pop businesses, and this will contribute to social integration,” said the top economic policymaker.
The increase in income tax is expected to impact some 93,000 wealthy people that covers some 20,000 highly paid salaried workers and 29,000 who inherited their wealth, according to the finance ministry. Also, 129 large companies with substantial taxable income will face higher corporate tax rates, it added.
With the changes, the government will be able to bring in an additional 6.27 trillion won in revenue every year over the next five years, the ministry said.
The tax hike is in line with President Moon’s slogan of “income-led growth,” that calls for increasing household income and spending with the help of various policy tools to fuel sustainable economic growth.
On the policy road map released a week earlier, Asia’s fourth-largest economy will run future economic policies under four key principles — income-led growth, job-creating economy, fair economy and innovative growth.
As part of this initiative, the government will raise the minimum hourly wage to 10,000 won from the current 6,470 won, and offer a variety of subsidies to lessen income disparity as household spending will become the new growth momentum for the national economy.
In order to secure an estimated 170 trillion won in government fund to afford such expanded state spending, the government came up with the tax revision plans to increase the tax burden on well-off individuals and businesses.
Another change, major shareholders of businesses who earn a large sum of money from stock transfers will face a capital gains tax of 25 percent, up from the current maximum 20 percent.
To help create more jobs and investment, the government will expand tax credits and benefits on companies who hire new employments, while foreigner-invested firms will receive extended income and corporate tax exemptions.
In order to secure an estimated 170 trillion won in government fund to afford such expanded state spending, the government came up with the tax revision plans to increase the tax burden on well-off individuals and businesses. (Image: Yonhap)
Another focus of the revision is to expand overall revenue base for taxation. The government will tighten taxation on stack transactions made by non-residents and foreign corporations, and every record of overseas card spending will be reported to the state customs agency on a real-time basis.
The ministry expects the changes included in the latest tax revision bill will translate into about 5.5 trillion won worth of additional tax revenue for the government every year.
Meanwhile, the business circle said it welcomes the government-led corporate tax hike plan but asked the government to continue the deregulation drive to create a business-friendly environment at the same time.
“The tax revision shows the government’s policy priority on job creation, innovation and income-led economic growth,” said the Korea Chamber of Commerce and Industry (KCCI). “But in order to create more jobs, it is necessary to create an environment where companies make free investment through removing red tape and fostering new economic engines.”
The government will submit the tax revision bill to the National Assembly on Sept. 1.
(Yonhap)
